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Payment networks in a search model of money

Author

Listed:
  • Antoine Martin
  • Michael J. Orlando
  • David R. Skeie

Abstract

In a simple search model of money, we study a special kind of memory that gives rise to an arrangement resembling a payment network. Specifically, we assume that agents can pay a cost to access a central database that tracks payments made and received. Incentives must be provided to agents to access the central database and to produce when they participate in this arrangement. We also study policies that can loosen these incentive constraints. In particular, we show that a "no-surcharge" rule has good incentive properties. Finally, we compare our model with that of Cavalcanti and Wallace.

Suggested Citation

  • Antoine Martin & Michael J. Orlando & David R. Skeie, 2006. "Payment networks in a search model of money," Staff Reports 263, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:263
    Note: For a published version of this report, see Antoine Martin, Michael Orlando, and David Skeie, "Payment Networks in a Search Model of Money," Review of Economic Dynamics 11, no. 1 (January 2008): 104-32.
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    References listed on IDEAS

    as
    1. Shouyong Shi, 1996. "Credit and Money in a Search Model with Divisible Commodities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(4), pages 627-652.
    2. repec:cup:macdyn:v:4:y:2000:i:3:p:289-323 is not listed on IDEAS
    3. Kahn, Charles M. & Roberds, William, 2008. "Credit and identity theft," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 251-264, March.
    4. Irina A. Telyukova & Randall Wright, 2008. "A Model of Money and Credit, with Application to the Credit Card Debt Puzzle," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(2), pages 629-647.
    5. Kiyotaki, Nobuhiro & Wright, Randall, 1991. "A contribution to the pure theory of money," Journal of Economic Theory, Elsevier, vol. 53(2), pages 215-235, April.
    6. Ricardo de O. Cavalcanti & Andres Erosa & Ted Temzelides, 1999. "Private Money and Reserve Management in a Random-Matching Model," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 929-945, October.
    7. Geoffrey R. Gerdes & Jack K. Walton, 2002. "The use of checks and other noncash payment instruments in the United States," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 88(Aug), pages 360-374, August.
    8. Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December.
    9. Weiner Stuart E. & Wright Julian, 2005. "Interchange Fees in Various Countries: Developments and Determinants," Review of Network Economics, De Gruyter, vol. 4(4), pages 1-34, December.
    10. Ed Nosal & Guillaume Rocheteau, 2006. "The economics of payments," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Feb.
    11. Ping He & Lixin Huang & Randall Wright, 2005. "Money And Banking In Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 637-670, May.
    12. Ricardo de O. Cavalcanti & Neil Wallace, 1999. "A model of private bank-note issue," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 104-136, January.
    13. Berentsen, Aleksander & Molico, Miguel & Wright, Randall, 2002. "Indivisibilities, Lotteries, and Monetary Exchange," Journal of Economic Theory, Elsevier, vol. 107(1), pages 70-94, November.
    14. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
    15. Ricardo de O. Cavalcanti & Neil Wallace, 1999. "Inside and outside money as alternative media of exchange," Proceedings, Federal Reserve Bank of Cleveland, pages 443-468.
    16. Kocherlakota, Narayana & Wallace, Neil, 1998. "Incomplete Record-Keeping and Optimal Payment Arrangements," Journal of Economic Theory, Elsevier, vol. 81(2), pages 272-289, August.
    17. Cyril Monnet & William Roberds, 2006. "Credit and the no-surcharge rule," FRB Atlanta Working Paper 2006-25, Federal Reserve Bank of Atlanta.
    18. Dean Corbae & Joseph Ritter, 2006. "Decentralized credit and monetary exchange without public record keeping," Studies in Economic Theory, in: Charalambos D. Aliprantis & Nicholas C. Yannelis & Gabriele Camera (ed.), Recent Developments on Money and Finance, pages 235-253, Springer.
    19. Koeppl, Thorsten & Monnet, Cyril & Temzelides, Ted, 2008. "A dynamic model of settlement," Journal of Economic Theory, Elsevier, vol. 142(1), pages 233-246, September.
    20. Geoffrey R. Gerdes & May X. Liu & Darrel W. Parke & Jack K. Walton, 2005. "Trends in the use of payment instruments in the United States," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 91(Spr), pages 180-201.
    21. Garcia-Swartz Daniel D. & Hahn Robert W. & Layne-Farrar Anne, 2006. "The Move Toward a Cashless Society: Calculating the Costs and Benefits," Review of Network Economics, De Gruyter, vol. 5(2), pages 1-30, June.
    22. Camera, Gabriele, 2000. "Money, Search, And Costly Matchmaking," Macroeconomic Dynamics, Cambridge University Press, vol. 4(3), pages 289-323, September.
    23. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-141, February.
    24. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
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    Cited by:

    1. Kahn, Charles M. & Roberds, William, 2008. "Credit and identity theft," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 251-264, March.
    2. Lai, Kuei-Kuei & Chen, Yu-Long & Kumar, Vimal & Daim, Tugrul & Verma, Pratima & Kao, Fang-Chen & Liu, Ruirong, 2023. "Mapping technological trajectories and exploring knowledge sources: A case study of E-payment technologies," Technological Forecasting and Social Change, Elsevier, vol. 186(PB).
    3. Monnet, Cyril & Roberds, William, 2008. "Optimal pricing of payment services," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1428-1440, November.
    4. Cyril Monnet & William Roberds, 2006. "Credit and the no-surcharge rule," FRB Atlanta Working Paper 2006-25, Federal Reserve Bank of Atlanta.
    5. Cyril Monnet & William Roberds, 2007. "Optimal pricing of payment services when cash is an alternative," Working Papers 07-26, Federal Reserve Bank of Philadelphia.
    6. Jonathan Chiu & Tsz-Nga Wong, 2014. "E-Money: Efficiency, Stability and Optimal Policy," Staff Working Papers 14-16, Bank of Canada.
    7. Kahn, Charles M. & Roberds, William, 2009. "Why pay? An introduction to payments economics," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 1-23, January.
    8. Roberds, William & Schreft, Stacey L., 2009. "Data breaches and identity theft," Journal of Monetary Economics, Elsevier, vol. 56(7), pages 918-929, October.

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    More about this item

    Keywords

    payment networks; money; search;
    All these keywords.

    JEL classification:

    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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